Commentary By

Salim Furth, Ph.D., researches and explains how public policy affects economic growth as senior policy analyst in macroeconomics at The Heritage Foundation’s Center for Data Analysis. Read his research.

Labor markets in the U.S. have become steadily less dynamic for the last few decades. In a dynamic labor market, there is more hiring, more firing, more promoting, and more quitting. All that churning leads to a stronger economy on average: more employment, higher productivity, and higher wages.

In a paper presented at the Kansas City Fed’s Jackson Hole symposium, economists Steven J. Davis and John Haltiwanger documented the decline. “The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades,” they conclude.

The simplest explanation is that the U.S. workforce is aging, and older workers tend to change jobs much less. But that is not the whole story. The most fascinating finding of the research is that fluidity seems to spill over across demographic groups: Just having more young people in a state raises the employment rate and job-shifting behavior of workers of all ages.

The new findings and previous research paint a grim picture of declining dynamism in business, with fewer startups and fewer fast-growing companies. The sclerosis is not just bad news for economic indicators like U.S. gross domestic product. The most harm is felt by young workers and workers with little education. Young or less-educated workers are the first to be squeezed out whenever the labor force shrinks, denying them current income and the upward mobility encouraged by experience.

The good news is that individuals can help themselves and the economy at the same time. Workers often get their biggest pay raises when switching jobs. Trying different occupations and employers makes workers more likely to find something they do extremely well. And Davis and Haltiwanger’s research suggests that employers might be a little more aggressive in hiring when labor fluidity rises.

So brush up your resume and read over a few job listings: When a job change helps you, it makes the rest of us better off as well.

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